Previous employer error pushed bonus into next FY - resulting in tax underpayment - advice please!

mairiwick · 17 May 2018 at 11:31AM

Hi All

First post here so will try not to waffle...

I've just been on the 'phone to HMRC due to a K tax code... resolved but in the mean time identified I have an underpayment due to them from 2017/18 of £2410.

The reason behind this is, my previous employer (I left Sept 2017), effectively messed up my bonus payment (manager went on holiday and did not submit to Finance before the deadline) meaning my bonus was not paid in FY 16/17 which it should have been (March). At the time, I discovered that those in my team that would have instantly been affected by the 40% tax level were accommodated and the Financial Director put through their payments in March. However, they deemed my salary (comfortably within the 20% bracket) not to be effected so this was not offered to me. This was not even communicated, nor disclosed and I was fobbed off afterwards when I challenged as I was told I would not be affected. my argument, which was ignored, was how could they possibly foresee my salary in 2017/18 tax year to know that this would not affect me.

Subsequently, October 2017 I started with a new company, on a higher salary that pushed me into 40% tax. This was enough that combined with the late bonus payment to now accrue tax underpayment. I've spoken with HMRC and I would have underpaid tax by £182 for 17/18 and no underpayment for 16/17 had the previous employer not made this decision.

I can't dispute HMRC as by the information and they way I have been paid, I believe they have correctly calculated this underpayment. However, do I have any rights to take this up with previous employer, as across this year I will pay an additional £2200 ish in tax that I don't think I should have ever had to pay.

Any advice would be very much appreciated, I'm quite upset that despite trying to flag this at the time I have now been penalised.

TELLIT01 · 17 May 2018 at 12:00PM

Many bonus payments are discretionary and therefore it may be difficult to argue successfully that it should have been paid on an earlier date.

ReadingTim · 17 May 2018 at 12:12PM

Given you suggest it was only the error combined with the increased salary which pushed you over the threshold, then no, you don't have any comeback because the decision to take the new job was yours - it was not an event the company could have foreseen, and had it not been for you taking a new job, you would not have had this issue.

Sadly, the additional tax payment is merely an unintended consequence of taking the new job - bad luck.

mairiwick · 17 May 2018 at 12:48PM

TELLIT01 - I have somewhere (currently searching!) a letter detailing bonus payment outline and the month/year of payment - would that counter that particular issue?

ReadingTim - Does the fact they made allowances and adjusted retrospectively for some team members not give me any weight in my argument, as in they had the opportunity to adjust this but made a decision not to rather than following a process for the team as a whole?

Thanks both of you for your comments, I'm trying not to approach this in a 'foot stomping' way but it's incredibly frustrating and not an insignificant amount of money to me.

ReadingTim · 17 May 2018 at 1:37PM

Whilst a company might consider compensating a current employee for such an error, it's essentially a goodwill payment. They've done nothing wrong, and the bonus scheme is discretionary anyway, so they're just paying out to keep a worker sweet.

However, there is no such need in respect of someone who's already left, so commercially, why would you do it? They're a business, not a charity. They'd only pay out if forced, in a court of law, and if it gets to that, you're well and truly in "foot stomping" territory. You also risk throwing good money after bad if you don't win and are faced with legal bills.

I know it's frustrating because the same sort of thing happened to me, but you're simply going to have to let this one go, and enjoy the additional income which job 2 provides.

steampowered · 17 May 2018 at 4:18PM

The question is whether the company had a legal obligation to pay you in the earlier tax year.

If the company was legally required to make the payment and it was late, then I suppose you could say the company was in breach of contract and must make good any losses resulting from the late payment.

You will need to check what your contract and bonus scheme says about the time for payment. Unfortunately I suspect they will be quite vague in which case you might not have any legal claim.

mairiwick · 17 May 2018 at 10:22PM

Thanks all, I still have a working relationship with this company so I'm thinking pushing it further would not do any good at all. I have a feeling contract was vague but bonus letter dated for that year was more specific - provided I can find it. It's definitely a shut the stable door after the horse has bolted but as I couldn't prove it at the time I wasn't given a chance, and now I can prove it it's too late. Sucks.

Thanks for all the replies - sadly not quite what I was hoping to hear but it's better to be realistic I guess.

Brynsam · 17 May 2018 at 11:45PM

If your entitlement to the bonus arose in the last tax year, you may well be able to successfully argue your case with HMRC. The crucial thing is when payment became a 'right' i.e. the bonus might have started life as discretionary but at some point it became 'yours'. If you still have a working relationship with your previous employer, a polite note asking if they could confirm payment became due before 6 April 2017 'but for administrative reasons....' [or whatever] was not paid until after the end of the tax year.

Previous employer error pushed bonus into next FY - resulting in tax underpayment - advice please!

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